Corporate Behavior: Can Consumers and Capital Markets Help the Reform Process
Business Review, Cambridge
INTRODUCTION: Corporate behavior has been in the limelight for a few years now. With issues raging from excessive compensation, inferior financial performance, misleading statements and even outright fraud, it is no wonder that the equity markets are pricing a higher risk premium. Though the performance of equity markets has suffered, this phenomenon has been a boon for activists who have long argued for reform in accounting and accountability. What makes this issue even more challenging is the fact that management must always deal with balancing interests of all stakeholders. This outcry has resulted into some substantial legislation such as the Sarbanes-Oxley (SOX) act. Even though the jury is out on whether SOX has accomplished what it was designed to do, namely, to provide more transparency and legitimacy to the numbers reported by the corporations, it is a step in the right direction, even if not THE step in the right direction. The impact of this fallout has been even more acute than in previous market downturns as more people have stake in the equity markets. Most households, either as a result of retirement accounts and or direct investing, participate in the markets.What evidence exists to indicate that corporate behavior has been less than stellar? Although such evidence may be difficult to generate, there is much anecdotal to this effect. An examination of some the legal cases pending and or being prosecuted include MCI, Enron, Adelphia, and more. But what of the argument that these cases are just outliers and most firms don’t behave, and indeed aren’t implicated. Here, the issue has to be better defined. The above mentioned firms, and other more recent cases like Marsh & McLennan, AIG, are cases where the actions of these corporations had been egregious. Most of the S&P firms, though far from such acute controversies, can still be questioned.
Sharma, Maneesh, corporate reform, Sarbanes-Oxley Act, consumers
Maneesh K. Sharma (2004).
Corporate Behavior: Can Consumers and Capital Markets Help the Reform Process. Business Review, Cambridge.3 (1), 289-291. JAABC.